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Monday, July 18, 2016

WILL 3 OF TOP 5 WORLD ECONOMIES BE LED BY WOMEN?

Editor’s
note:If Hillary Clinton is successful in being
elected President of the United States, she will join Andrea Merkel, Chancellor
of Germany and Theresa May, Prime Minster of Great Britain as leaders of 3 of
the world’s top 5 economies.

GUEST BLOG – By
Prableen Bajpai, CFA (ICFAI) -- The inequitable distribution of income
is present at the global level where the nominal gross domestic product (GDP)
of the top 10 economies adds up to 65% of the world’s economy, and the top 15
economies add up to 75%. The remaining 172 countries constitute only 25% of the
world’s economy.

Criteria.

Here’s
the list of the top 10 economies based on the criteria of GDP, current prices
(U.S. dollars) which is simply known as nominal GDP. The rankings differ if the
same list is prepared using the GDP based on purchasing-power-parity (PPP). As
a general rule, developed countries have a smaller gap between their nominal
GDP (i.e., current prices) and GDP based on PPP. The difference is greater in
developing countries, which tend to have a higher GDP when valued on
purchasing-power-parity basis. This list is based on IMF data, which is updated
twice annually.

1. United States

The
U.S. economy is the largest in the world in terms of nominal GDP (measured at
current prices in U.S. dollars). The $17.41 trillion U.S. economy is
approximately 22.44% of the gross world product. The United States is an
economic superpower that is highly advanced in terms of technology and
infrastructure and has abundant natural resources. However, the U.S. economy
loses its spot as the number one economy by a slight margin to China when
measured in terms of GDP based on PPP. In these terms, China’s GDP is $17.63
trillion and the U.S. GDP is $17.41 trillion. However, the U.S. is way ahead of
China in terms of GDP per capita (PPP) - approximately $54,678 in the U.S.
versus $12,893 in China.

2. China

China
has transformed itself from a centrally planned closed economy in the 1970s to
a manufacturing and exporting hub over the years. The Chinese economy is
propelled by an equal contribution from manufacturing and services (45% each,
approximately) with a 10% contribution by the agricultural sector. The Chinese
economy overtook the U.S. economy in terms of GDP based on PPP. However, the
difference between the economies in terms of nominal GDP remains large. China
is currently a $10.35 trillion economy and has been growing at around 7% in the
recent years, although that growth is starting to slow down.

3. Japan

Japan’s
economy ranks third in terms of nominal GDP, while it slips to fourth spot when
comparing the GDP by purchasing-power-parity. The economy has been facing hard
times since 2008, when it was first showed recessionary symptoms. Though the
government’s stimulus packages have helped the economy recover a bit, the
massive earthquake in 2011 gave the fragile economy another jolt. Economic
growth has hovered between 0.5–2% in recent times. The nominal GDP of Japan is
$4.77 trillion, its GDP (PPP) is $4.78 trillion, and its GDP (PPP) per capita
is $37,683.

4. Germany

Andrea Merkel

Germany
is Europe’s largest and strongest economy. On the world scale, it ranks as the
fourth largest economy in terms of nominal GDP. Germany’s economy is known for
its exports of machinery, vehicles, household equipment, and chemicals. Germany
has a skilled labor force, but the economy faces demographic challenges like
most European nations. The size of its nominal GDP is $3.82 trillion, while its
GDP in terms of purchasing-power-parity is $3.62 trillion. Germany’s GDP (PPP)
per capita is $44,741, and the economy has moved at a moderate pace of 1-2% in
recent years.

5. United Kingdom

Theresa May

The
United Kingdom, with a $2.99 trillion GDP, is the world’s fifth largest. The
economy of the UK is primarily driven by services, as the sector contributes
more than 75% of the GDP. With agriculture contributing a minimal one%,
manufacturing is the second most important contributor to GDP. Although
agriculture is not a major contributor to GDP, the country produces 60% of its
food needs domestically by employing less than 2% of its labor force. After the
referendum in June 2016 when voters decided to leave the European Union,
economic prospects for the UK are highly uncertain, and the UK and France may
very well swap places. The country will operate under EU regulations and trade
agreements for two years after the formal announcement of an exit to the
European Council, in which time officials will work on a new trade agreement.
Economists have estimated that a Brexit could result in a loss of anywhere from
2.2-9.5% of GDP, depending on the trade agreements replacing the current EU
regulations.

6. France

France,
the most visited country in the world, is the sixth largest economy with a
nominal GDP of $2.83 trillion. Its GDP in terms of PPP is around $2.59
trillion. France has a low poverty rate and high standard of living, which is
reflected in its GDP (PPP) per capita of $40,445. The country is among the top
exporters and importers in the world. France has experienced a slowdown over
the past few years and the government is under immense pressure to rekindle the
economy, as well as to combat rising unemployment.

7. Brazil

Brazil
with its $2.24 trillion economy, it is the seventh largest economy by nominal
GDP. The Brazilian economy has developed services, manufacturing, and
agricultural sectors with each sector contributing around 68%, 26%, and 6%
respectively. Brazil is a part of BRIC and ahead of all other South American
economies. The Brazilian GDP measured in purchasing-power-parity is $3.07
trillion, while its GDP per capita (PPP) is $15,153. However, the country has
21% of its population living below the poverty line.

8. Italy

Italy’s
$2.13 trillion economy is the world’s eighth largest in terms of nominal GDP.
Italy is among the prominent economies of the eurozone, but it has been
impacted by the crisis in the region. The economy suffers from a huge public
debt estimated to be about 133% of GDP, according to the CIA World Factbook.
The economy is also facing high unemployment and deteriorating economic growth.
The government is working on various measures to boost the economy that has
contracted in recent years. The GDP measured in purchasing-power-parity for the
economy is estimated at $2.06 trillion, while its per capita GDP (PPP) is
$34,455.

9. Russia

Russia’s
domestic consumption amid a politically stable atmosphere has paved the way for
economic growth in the country. The country has transformed itself since the
fall of the Soviet Union in 1991 from a centrally planned economy to a more
market-based open economy. Russia’s $2.05 trillion economy is currently facing
a crisis as a result of imposed sanctions and a steep fall in oil prices.
Russia’s economy in terms of purchasing-power-parity is estimated at $3.56 trillion,
while its GDP per capita is $24,764.

10. India

India
ranks third in GDP in terms of purchasing-power-parity ($7.28 trillion), while
its nominal GDP ($2.04 trillion) places it in the tenth spot. The country’s
high population drags its GDP (PPP) per capita down to $5,778. India’s GDP is
still dependent on agriculture (17%), compared to western countries. However,
the services sector has picked up in recent years and now accounts for 57% of
the GDP, while industry contributes 26%. The economy’s strength lies in a
limited dependence on exports, high saving rates, favorable demographics, and a
rising middle class. India recently overtook China as the fastest growing large
economy.

The Bottom Line

Some
other economies that are a part of the “trillion-dollar” club and have the
potential to make it to the top 10 going ahead are Canada ($1.79 trillion),
Australia ($1.48 trillion), South Korea ($1.45 trillion), Spain ($1.4
trillion), and Mexico ($1.3 trillion).

Rankings
based on IMF’s database, GDP estimates, and projections. Select data is from
the CIA World Factbook.

Prableen Bajpai,
CFA (ICFAI) is the Founding Director at FinFix; an enterprise in India,
primarily engaged in financial research, reports, training and spreading
financial literacy while striving to provide counselling to the economically
less privileged.

In her previous assignment,
Prableen was heading the Research at Vantage Wealth Management Solutions Pvt.
Ltd., managing the compilations of the monthly compendium moneytree®, meant to
educate investors on stock markets and investments.

She has also taught
Investment Analysis and Macroeconomics to business students at the Royal
Thimphu College (RTC), Bhutan. Prableen has been writing about investing, stock
markets, economy, and personal finance for almost a decade. Prableen is a
Chartered Financial Analyst (CFA) from ICFAI, holds a masters degree in
Economics and is pursuing her CFP® certification.